1. Plan Design Trends in Higher Education
Work on the front allows participants to stop working at the end
©2003 – 2013 Multnomah Group, Inc. All Rights Reserved.

2. Erik Daley, CFA
Erik is the Managing Principal for Multnomah Group. He is a member of
Multnomah Group’s Investment Committee and leads the firm’s tax-exempt
practice, focusing on higher education and healthcare organizations. Erik
consults regularly with clients on a variety of retirement plan related topics to
help manage their fiduciary risks. He is a national speaker on retirement plan
issues.
Prior to founding the Multnomah Group in 2003, Erik served as a Vice
President of Retirement Services and led the Portland, OR practice of a
national retirement services firm. In that position Erik was a founding member
of the firm’s national Investment Committee and had oversight for business
development in the western United States.
Erik is a member of the CFA Institute, the CFA Society of Portland, the CFA
Society of Seattle, the American Society of Pension Professionals and
Actuaries, the Portland Chapter of the Western Pension & Benefits Council,
and the Society for Human Resource Management. Erik holds a B.B.A. from
the University of Iowa.
2 PLAN DESIGN TRENDS IN HIGHER EDUCATION

3. Agenda
• Compensation Model in Higher Education
• Defined Benefit to Defined Contribution Transition Impacts
• Defined Contribution Plan Lifecycle
• Plan Design
• Young Savers
• Accumulators
• Pre-Retirees
• Plan Services
• Investment Structures
• Employee Education Needs
• 5 Steps to Creating a True Retirement Plan
3 PLAN DESIGN TRENDS IN HIGHER EDUCATION

4. Compensation Model in Higher Education
On average, 75% of the costs to run a college are related to personnel
expenses
• A significant portion of that cost is attributable to benefits
- Retirement
- Health
Faculty salaries are especially expensive
• Business
• Engineering
Costs go beyond direct compensation and benefits
• Paid time off for research
• Graduate assistants to support research
• Equipment and facilities to attract talent
Tenure
• Shifting faculty needs
• Increasing labor cost
4 PLAN DESIGN TRENDS IN HIGHER EDUCATION

5. Compensation Model in Higher Education
$120,000.00
$113,176
$100,000.00
$78,565
$80,000.00
$66,564
$60,000.00
$47,847
$40,000.00
$20,000.00
$0.00
Instructors Assistant Professors Associate Professors Full Professors
The American Association of University Professors. Salaries are adjusted to a nine-month work year. 2011-2012
academic year. Excludes cost of benefits and other non-compensation costs.
5 PLAN DESIGN TRENDS IN HIGHER EDUCATION

6. Change in Model for Retirement Savings
Defined Benefit Plans Defined Contribution Plans
85% Retirement Readiness1 51% Retirement Readiness1
Primarily employer funded, with Mix of employer and employee
occasional required participant Funding contributions
contributions
Employer directed Investment Strategy Participant directed
Participants determine how much income Participants focus on generating a sum of
they need to replace and work to the goal Evaluation Metric assets that will become the source of
of achieving that level of benefit meeting retirement expenses
High Plan Sponsor Volatility Low
Participants are protected against Each participant must individually ensure
investment and longevity risk
Participant “Safety” their retirement preparedness
1National Institute on Retirement Security. Retirement Readiness – What
Difference Does a Pension Make?
6 PLAN DESIGN TRENDS IN HIGHER EDUCATION

7. Impact of the Transition
Employees whose primary retirement plan is a DC plan tend to retire one to two
years later, than employees covered by a pension plan
Center for Retirement Research, “The Recent Trend Towards Later Retirement,” March 2007
Individuals covered only by a DB plan are 87% more likely to retire in any given
year that individuals only covered by a DC plan.
Rui Yao and Eric Park, University of Missouri, “Do Market Returns Affect Retirement Timing?” 2011
A 1% increase in the S&P 500 Index in any given year increases the probability
that the pre-retiree will retire by 2.5%
Rui Yao and Eric Park, University of Missouri, “Do Market Returns Affect Retirement Timing?” 2011
Delayed retirements may also increase employers’ healthcare costs.
Healthcare costs for a 65-year-old worker are twice those of a worker between
the ages of 45 and 54
U.S. Department of Health and Human Services, “National Health Care Expenditure Sheet.” Data as of 2004
The ability to retain young talent is impacted by the prospect of career and
professional advancement
7 PLAN DESIGN TRENDS IN HIGHER EDUCATION

8. Lifecycle of a Defined Contribution Plan
•Accomplished
•Young •Mid career
•Experienced
•Lower income •Highly
•Concluded
Young Savers •Direct Accumulators productive Pre-Retirees
costs of
competition for •Financially
establishing a
earned income secure
family / life
1. Begin the retirement savings 1. Demonstrate the progress 1. Provide extensive access to
process towards retirement readiness financial planning and advice
2. Reward engagement and 2. Reduce the impact of leakage on 2. Focus on retirement plan as a tool
patience retirement readiness for securing retirement rather than
3. Affirm the commitment to 3. Begin educating on what a wealth accumulation instrument
beginning the savings process retirement is 3. Identify opportunities to incent
retirement
8 PLAN DESIGN TRENDS IN HIGHER EDUCATION

9. Designing the Best Defined Contribution Plan
Plan Forward
1. Benefit Plan Design
2. Plan Provider Services
3. Participant Education
9 PLAN DESIGN TRENDS IN HIGHER EDUCATION

10. Benefit Plan Design
Higher education is damaged by their high employer contribution rates to
defined contribution plans
Distribution of Mandatory Employer Core Contributions1
40%
35%
35%
30% 31%
25% 27%
20% Public Plans Peer Group
20% 20% 20%
Private Plans Peer Group
15% 16% 16%
10%
9%
1Plan Design in Higher Education: Best
5% 6%
Practices for Improving Retirement
Readiness
0%
Below 6% 6%-8% 8%-10% 10%-12% 12%+
10 PLAN DESIGN TRENDS IN HIGHER EDUCATION

11. Benefit Plan Design – Young Savers
Pre-Retirees
Accumulators
Young Savers
Nearly all defined contribution plans require an employee to
defer salary to derive adequate retirement benefits
• A general rule of thumb is 10-15% total to generate adequate
income replacement
1. Employee Mandatory Contributions
2. Automatic Enrollment and Automatic Escalation
3. Adopting a Hybrid Match Formula
11 PLAN DESIGN TRENDS IN HIGHER EDUCATION

12. Benefit Plan Design – Young Savers
Employee Mandatory Automatic Enrollment and Adopting a Hybrid Match
Contributions Automatic Escalation Formula
Pros 100% adoption. Unlike nearly Fundamentally does not change In some instances, a hybrid
every other option, mandatory the “contract” between match formula may reduce the
means mandatory and all participant and plan sponsor. cost of contributions by the
participants (and the sponsor) Plan participants are provided sponsor. Participants may be
benefit as a result. an option to opt-out based on incented to “engage” in their
their needs, but many retirement planning process.
participants elect to
automatically enrolled and
thereby become participants.
Cons Employees may eventually While automatic enrollment can Impact of the change may not be
perceive employee mandatory be instituted in such a way to as significant as the political cost
contributions as an additional address current employees who of adopting. Further, the lowest
employer contribution thereby are not deferring, it is most paid employees will likely see
reducing the perceived value of typical to begin automatic their retirement preparedness
their compensation verses enrollment prospectively thereby decline, which may not meet the
peers. reducing its potential impact on social justice policies of the
current participants. sponsor.
Implementation Very difficult. The perceived Relatively easy. Employees Difficult. Taking current
compensation takeaway will be surveyed generally support the contributions made by the
considerable for most implementation of automatic sponsor and making them
institutions. enrollment, especially when it contingent is seen as a
does not impact them. Older takeaway; even in instances
payroll systems can be where the potential contribution
challenging to customize in a grows.
manner supportive of automatic
increase and enrollment
features.
12 PLAN DESIGN TRENDS IN HIGHER EDUCATION

13. Higher Education Lags Behind Other Industries in
Usage of Automated Plan Features1
Annual Increase
Automatic Enrollment Program
Higher Education <5% <5%
Not-for-Profit Healthcare 29% 49%
Corporate 22% 76%
1Plan Design in Higher Education: Best Practices for Improving Retirement Readiness
13 PLAN DESIGN TRENDS IN HIGHER EDUCATION

14. Automatic Enrollment Works
The Impact of Automatic Enrollment on Participation Rates
in Corporate DC Plan1
90%
83%
80%
70%
60% 54%
50%
40%
30%
20%
10%
0%
Non-AE Plan Participation Rate AE Plan Participation Rate
1Plan Design in Higher Education: Best Practices for Improving Retirement Readiness
14 PLAN DESIGN TRENDS IN HIGHER EDUCATION

15. Benefit Plan Design – Accumulators
Pre-Retirees
Accumulators
Young Savers
“Neither a borrower or a lender be”
1. Plan Rollovers
2. Retirement Plan Loans
3. Hardship Withdrawals
15 PLAN DESIGN TRENDS IN HIGHER EDUCATION

16. Retirement Leakage
Only 20% of employees who take a lump-sum distribution roll proceeds into a
tax-qualified IRA or retirement plan account
GAO
Participants age 35-45 are more likely to borrow – and when they do, are more
likely to take the maximum – as compared to their younger and older
counterparts
Borrowing from Yourself: The Determinants of 401(k) Loan Patterns
Estimated participant loan default rate from July 2011 – May 2012 was 17.4%
Navigant Economics
Prevailing plan interest rate is tied to Prime (3.25%)
Hardship distributions are much less prevalent (typically less than 2% annually)
16 PLAN DESIGN TRENDS IN HIGHER EDUCATION

17. Defined Contribution Plan Participants’ Activities
(2006-11)
2006 2007 2008 2009 2010 2011
% of Active Participants with a
15.0% 16.0% 15.3% 16.5% 18.2% 18.5%
Loan
US Retirement Assets in Defined
$4.1 $4.4 $3.4 $4.0 $4.5 $4.6
Contribution Plans ($trillion)
% of Active Participants with a Loan
20.0%
18.5%
18.0% Investment Company Institute, Defined Contribution Plan Participants’
18.2% Activities 2011, April 2012
16.0%
16.0% 16.5%
15.0% 15.3%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2006 2007 2008 2009 2010 2011
17 PLAN DESIGN TRENDS IN HIGHER EDUCATION

18. Benefit Plan Design – Pre-Retirees
Pre-Retirees
Accumulators
Young Savers
Help participants keep their eyes on the prize
1. In-service plan distributions
2. Early retirement windows
18 PLAN DESIGN TRENDS IN HIGHER EDUCATION

19. In-Service Plan Distributions
Plans routinely provide older employees (59 ½ - 65) the ability to begin taking
distributions from their retirement plan
1. Maintain a focus on retirement
2. In-service distributions should ideally be tied to phased retirement programs
with committed dates of retirement
403(b) plans are flexible in allowing employers to make post-severance
contributions to a retirement plan. Plan sponsors should be judicious with the
utilization of these features
1. Early retirement needs to be highly targeted
2. Utilization of early retirement may shape expectations about future
availability and alter normal plan behavior
19 PLAN DESIGN TRENDS IN HIGHER EDUCATION

20. Plan Services
Participant Type How
Participants
Self-Identify
• K.I.S.S. your participants
Delegators 69%
• Easy to enroll Do-It-Yourselfers 30%
• Easy to allocate Self-Directed Sophisticates 1%
• Easy to use Source: J.P. Morgan Retirement Plan Services
Impact of Choice on P a r t i c ip a t i on Rates
• Sophisticates will optimize
outcomes in a any plan design
Source: Iyengar, Sheena S.; Jiang, Wei; Huberman, Gur “How Much Choice is Too Much?:
Contributions to 401(k) Retirement Plans”
20 PLAN DESIGN TRENDS IN HIGHER EDUCATION

21. Investors Fail to Track the Market
Annualized Returns for the 20 Years Ended 12/31/2010
10.00%
9.14%
9.00%
8.00%
6.89%
7.00%
6.00%
5.00%
3.83%
4.00%
3.00% 2.57%
2.00%
1.01%
1.00%
0.00%
Avg. Equity Investor S&P 500 Index Avg. Fixed Income Investor
Barclays Agg Bond Index Inflation
Source: Dalbar, Inc. 2011 Quantitative Analysis of Investor Behavior
21 PLAN DESIGN TRENDS IN HIGHER EDUCATION

22. “Easy” Investment Structures
Managed Account Target Maturity Target Risk
Structure Managed account structures Participants are invested in a Target risk defaults are typically
typically use an array of single fund with a a single balanced fund that
underlying products and predetermined glidepath that allocates between stocks and
allocate to them based on becomes more conservative as bonds in a manner consistent
information known about the a participant nears a specified with its prospectus.
participant. There are a finite age (typically 65).
number of portfolios a
participant may be invested in
based on the data known.
Pros Managed account solutions Provides some customization A balanced fund is the simplest
carry far more known data for participants with only a date- of the default investment
about a participant, such as of-birth variable. Typically is a structures, a single investment
wage which has a material lower cost alternative to other product for any participant who
impact on investment allocation default investment structures. fails to make an election or
strategy. Some managed wishes to delegate investment
account solutions also allow allocation and monitoring.
customization of the analytics
to incorporate known data
about the population being
served, such as turnover.
Cons Can be a more expensive total Age is an important factor in Target risk solutions invariable
cost of ownership as driving asset allocation strategy, provide too much volatility for
investment product costs are but not the exclusive factor. older works and too little equity
compounded by a managed Additionally, target date funds exposure for younger workers.
account fee. are typically closed solutions.
22 PLAN DESIGN TRENDS IN HIGHER EDUCATION

23. Investment Returns Cannot Fix Savings Problems
5 Year Annualized Returns (Period Ending 12/31/2010)
Percentile Single Target- Managed All Other
Date Fund Account Participants
Mean 3.93% 3.65% 3.76%
5th 3.62% 2.20% -0.02%
25th 3.62% 3.08% 2.66%
50th 3.90% 3.66% 3.80%
75th 3.90% 4.22% 4.64%
95th 4.65% 5.06% 8.09%
Source: Vanguard 2011 “Participants During the Financial Crisis: Total Returns 2005-
2010”
23 PLAN DESIGN TRENDS IN HIGHER EDUCATION

24. Education has Limits
“…policy makers should be very concerned that retirement education does not
increase the likelihood that financially vulnerable groups – women, persons
without a college degree, and particularly persons with lower incomes – will
save their distributions”
U.S. Social Security Administration Office of Policy. “Does Retirement Education Teach People to Save Pension
Distributions?”
Peer behavior may be as or more impactful on participant savings behavior
than employee education
E. Duflo, E. Saez / Journal of Public Economics 85 (2002)
24 PLAN DESIGN TRENDS IN HIGHER EDUCATION

25. Employee Education Tips
During Enrollment
1. Focus education on financial literacy and savings behaviors
2. Deemphasize the importance of investment selection on retirement plan
participation
3. Do not require education as a predecessor to participation
4. Appreciate the importance of peer group behavior and leadership in
furthering retirement plan performance
During Accumulation
1. Begin educating on external factors on retirement
(healthcare, insurance, social security, etc.)
2. Highlight the effectiveness of current behaviors and the culture of savings
and participation
3. Provide access to additional personal education resources to validate
savings goals and structure
25 PLAN DESIGN TRENDS IN HIGHER EDUCATION

26. Pre-Retiree Needs
Viewing the participant as a whole
1. Bringing retirement plan projections to a fine point
• External assets
• Spousal income
• Spending needs
• Healthcare costs/resources
• Understanding federal and state resources
2. Advice for participants on how to secure and protect accumulated savings
• Asset allocation
• Liquidity constraints
• Comprehensive retirement planning
3. Transitioning accumulations to income
• Annuity options
• Income planning
26 PLAN DESIGN TRENDS IN HIGHER EDUCATION

27. The Optimal Higher Education Plan Design
Easy to
Start
1. Automatic Enrollment
and investment
2. Automatic escalation
towards full retirement
preparedness
1. Limit loans 1. Extensive
2. Limit hardships education, planning, a
3. Encourage retirement nd projections
rollover 2. Focus on retirement
as the goal
Safe to Leave
27 PLAN DESIGN TRENDS IN HIGHER EDUCATION

28. Five Steps to Improving Your Plan and Your
Institution
1. Evaluate the Current Retirement
Readiness of Your Institution as a
Benchmark Remove
Measure Plan
obstacles to
2. Determine Obstacles to New Hire Effectiveness
participation
Participation
3. Develop Mechanisms to Move New
Hires Towards Adequate Income
Replacement
4. Plug the Holes
Educate Improve
• Current loan demographics towards the deferral rates
goal of a and
• Hardship withdrawal impact successful participant
5. Build the Communication Plan to retirement behavior
Support the Objective
• Develop and Education Policy
Statement Plug holes
• Early emphasis on savings
• High-touch participant advice and
financial planning for pre-retirees
28 PLAN DESIGN TRENDS IN HIGHER EDUCATION

29. Disclosures
Multnomah Group, Inc. is an Oregon corporation and SEC registered investment
adviser.
Investment performance and returns are based on historical information and are not
a guarantee of future performance. Investing contains risk. Some asset classes
involve significantly higher risk because of the nature of the investments and the
low liquidity/high volatility of the securities.
Any information and materials contained herein or on our website are provided for
general informational purposes only and are not intended to be comprehensive for
any particular subject. Multnomah Group utilizes information from third party
sources believed to be reliable but not guaranteed, and as a result, information is
provided to you "as is." We do not represent, guarantee, or provide any warranties
(either express or implied) regarding the completeness, accuracy, or currency of
information or its suitability for any particular purpose. Multnomah Group shall not
be liable to you or any third party resulting from any use or misuse of information
provided.
Receipt of information or materials provided herein or on our website does not
create an adviser-client relationship between Multnomah Group and you.
Multnomah Group does not provide tax or legal advice or opinions. You should
consult with your own tax or legal adviser for advice about your specific situation.
29 PLAN DESIGN TRENDS IN HIGHER EDUCATION